We will often hear about people buying shares and might wonder whether we should buy some for ourselves. It is not a decision that should be taken lightly though and it is well worth finding out more about the risks first.
You Could Lose Everything
We often hear all of the good things about shares. We hear tales of people making loads of money and selling their shares and making lots of money. It is worth making sure that you understand that in order for the possibility that you could make lots of money, you could end up losing all of your money. This might seem odd as we are used to putting our savings into a bank and then taking it back out when we want to spend it and being paid interest on it. Shares are very different though as we are buying a part of a company. If the value of that company drops then our shares in it are worth less money and vice versa. This means that we are relying on the company doing well. The stock market will also fluctuate generally and that might have an impact on what your shares are worth.
You Need a Lot of Money
When you buy shares you often need quite a bit of money. It is often the case that it is not really designed for individual investors and so the amount that you need to buy is high. This will depend on the company you buy through though. You may find that there is a management fee and this will mean that if you do not have a large holding, you will not make enough money to be able to cover that fee.
Only Invest What you can Lose
As you should only invest money that you can afford to lose, then finding a big lump sum can be difficult. You could find that you do not have that much money that you can afford to lose and therefore do not have enough to invest. Even if you do have enough money, you might decide that you are not willing to take the risk and would rather put your money in a safe place anyway.
You Need to Invest for a Long Time
The stock market fluctuates up and down. This means that you will find that the value of your shares goes up and down a lot in the short term. In order to allow for this, people are advised to keep their shares for at least ten years. Hopefully, this will help to allow for any fluctuations and hopefully will mean that your shares will go up in value. This is a long time to keep money tied up though and you might want to use it before then so it might not be wise to tie it up like this.
So you can see that there is a lot more to think about when you are buying shares than when you are choosing a savings account. Of course, savings accounts do differ a lot as well, but the risk is minimal which means that if you do make a mistake it is easier to rectify. You may decide to tie your money up in a savings account as well to get more interest but at least you are guaranteed a rate of interest with this sort of account rather than taking a risk that you may not even get all of the money you put in back again, which is the risk you take with shares. There is also a lot to learn with shares, they are more complex and it is good idea to do lots of research first.